Dr. Micheál Collins:

When one compares it relative to the overall tax take, it is a significant figure and a significant area. In my examination of the increase in expenditure in the period running up to the economic crash, as set out in various documents published in that regard, I added into that the increase in tax expenditure over that period and, of course, it was one of the biggest areas of expenditure that had grown over the period. We do not consider tax expenditures because it is not revenue that is flowing in and therefore it is less visible. I think monitoring in this regard has improved a lot. It is useful that a committee like this exists and has the opportunity to focus on this area. To be honest, other than this committee, that focus will not happen. As an institution, the committee has an important role in this area. It is a big area of budgetary policy and, therefore, I would think, a big area of budgetary oversight.

In terms of tax expenditures to review, a couple come to mind. As I mentioned in my earlier responses, the issues of the pension tax expenditures are pretty clear. Even if we were not in the midst of pension changes, there are interesting questions around the appropriateness or effectiveness of those measures given the scale of moneys involved. The special assignee relief programme, SARP, is a tax expenditure aimed at foreign executives based in Ireland on incomes of more than €75,000 per annum. Beyond €75,000 they get a reduction in tax. It is very much the highest earners resident in the State to whom we are giving this tax relief. Generally, these are employees of profitable international companies. This is an attractive incentive and I am sure the recipients are delighted to receive it, as would anybody who was in a position to receive it, but I would question whether all of these individuals would leave Ireland or not be replaced by similar or equivalent people if that support was not in place. We should question that support, in particular because there has been little take-up of it.

On the work of the Commission on Taxation, we did not focus on the system of capital allowances that are in place, which is an interesting area for tax expenditure. It might be an area the committee could ask the Department of Finance and others to review. It strikes me there are two issues with regard to capital allowances.

It may seem strange that there are capital allowances associated with appreciating assets. There is logic in having capital allowances for assets that depreciate over time such as furniture, IT equipment and so on. However, we also give capital allowances for assets that increase in value over time or are likely to so do such as some property assets or office blocks. We have never considered why there should be a capital allowance for an appreciating asset. It may be that accountants have considered the matter in quite a narrow way such that it has not been considered in terms of broader public policy.

On capital allowances more broadly, the Revenue Commissioners annually estimate the losses companies or individuals are able to carry forward. In effect, one can write off past losses against future income. At the extreme end, some of the banking institutions which lost such vast sums of money that the State had to rescue them are unlikely to pay tax on their profits for quite some time to come, irrespective of how profitable they are, because of their accumulated losses. There is a very interesting public policy issue as to whether we should facilitate that practice for individuals and corporates indefinitely or at all. That policy could be changed. Individuals who have lost money through share investments, for example, can also indefinitely write off the losses against subsequent profits. There is an interesting question as to why they may do so indefinitely, rather than over a fixed period such as five years, for example. Why does it happen at all? My observations of corporates which clearly are the big beneficiaries of this allowance indicate that they expect the law to change at some point. They probably do not want it to change because that would decrease their profits and increase the taxes they pay. We need to understand why that structure should be retained as we do not currently have that understanding.

The research and development tax credit was mentioned. As with any enterprise support the State provides, its dead weight aspect, namely, supporting things that would have happened anyway, is generally unavoidable. We can think about ways of minimising it, but it is more than likely to happen. International research literature on enterprise supports estimates a high proportion of dead weight. Such supports are in place only to reap the benefits of the proportion above dead weight which is triggered by the measure. We must continually revisit these tax expenditures, particularly the very expensive ones, to see if they are still operating as intended and offering value for money because, as members are aware, many other things could be done in society with those resources.